Option Activity Alert: BEAM, FRX, HES, SMG

BEAM – Beam, Inc. – The bourbon maker’s shares slipped 0.40% to $49.85 in early-afternoon trade, but may not rally much ahead of December expiration, by the looks of call selling in the front month. Though the holiday season, and perhaps market turmoil, may spur some to reach for the Jim Beam bottle or pass the Courvoisier, at least one investor is taking a bearish stance on the liquor producer. It looks like the investor sold more than 660 calls at the Dec. $50 strike to pocket premium of $1.10 apiece. The trader keeps the full amount of premium received as long as shares in Beam, Inc. fail to rally above $50.00 at expiration day next month. If the investor holds no position in the stock, the naked-short stance in calls could result in losses to the upside in the event that BEAM’s shares rally 2.5% over the current price to surpass the upper breakeven point at $51.10 by December expiration. Shares in Beam, Inc. topped $51.10 as recently as November 15, the same day the stock peaked at $51.35, its highest point since the company started trading as BEAM, formerly Fortune Brands (FO), on the New York Stock Exchange.

FRX – Forest Laboratories, Inc. – Shares in the drug maker are up 1.4% at $29.41 this afternoon, and it looks like a number of options traders are positioning for the price of the underlying to extend gains in the next few months. Investors gearing up for a Forest Labs rally exchanged more than 4,400 calls at the Dec. $30 strike against open interest of just 99 contracts. It appears most of the contracts were purchased for an average premium of $0.60 each, by bullish players who may profit at expiration next month should shares in FRX increase another 4.0% to trade above the average breakeven point at $30.60. Call options accumulation spread to the Dec. $31 and $32 strikes, where another 230 and 200 contracts were snapped up at premiums of $0.31 and $0.15 each, respectively. Bullish sentiment on the pharmaceuticals firm spread to the Jan. 2012 $31 strike, where traders picked up 2,100 calls for an average premium of $0.93 a-pop. Investors long the calls make money if shares in Forest Labs surge 8.6% to surpass the average breakeven price of $31.93 at expiration next year. January 2012 contract call options expire several days after Forest Laboratories is due to report third-quarter earnings. The stock last traded above $31.93 back on October 28. Shares yesterday dipped to a fresh 52-week low of $28.79, and are down roughly 30.0% from the June 22, 2011, 52-week high of $40.52.

HES – Hess Corp. – Call options on the energy company are more active than usual this morning on reports of renewed takeover chatter. Shares in Hess Corp. had been up as much as 1.7% earlier in the session, but have cooled somewhat to stand 0.25% higher on the day at $58.61 as of 10:50 AM in New York. Speculative bullish activity is heaviest in the front month, with deep out-of-the-money calls seeing the most volume. Investors exchanged more than 2,800 calls at the Dec. $70 strike against previously existing open interest of 1,168 contracts. Trading in these options was mixed given that roughly equal numbers of the calls were purchased and sold. Meanwhile, call buying was more prevalent than selling at the most active nearer-to-the-money strikes in the front month. Traders snapped up more than 780 in-the-money calls at the Dec. $55 strike for an average premium of $5.49 each, and picked up some 1,450 call options up at the Dec. $60 strike at an average premium of $2.65 apiece. Investors long the Dec. $55 and $60 strike calls profit at expiration in the event that Hess Corp.’s shares rally 3.2% and 6.9% to top the effective breakeven prices of $60.49 and $62.65, respectively. Like-minded bulls also purchased calls at the Dec. $65 and $67.5 strikes in the first half of the trading session.

SMG – The Scotts Miracle-Gro Co. – The maker of branded lawn and garden care products popped up on our ‘hot by options volume’ market scanner this morning after one strategist initiated a sizable position in December contract puts. The trader appears to issuing a vote of confidence on the stock, though SMG shares have certainly not thrived in recent weeks, given the roughly 16.25% drop in price since October 27. Shares in Scotts Miracle Gro Co. continued to slide on Tuesday, falling 0.60% to $41.99 in the first half of the trading session. It looks like the options player sold 1,500 puts at the Dec. $40 strike to pocket premium of $0.60 per contract. The trader walks away with the full amount of premium at expiration next month as long as shares in Scotts exceed $40.00. Shares in SMG last traded below $40.00 back on August 8.

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

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